Europe chemical stocks rise on ECB bond purchase announcement

06 September 2012 16:17[Source: ICIS news]

LONDON (ICIS)--European chemical stocks rallied on Thursday, in line with financial markets, following the European Central Bank’s announcement that it intends to buy up eurozone government debt in a bid to stabilise the region.

Representing the most interventionist measure adopted by the ECB since the onset of the financial crisis, its much-anticipated scheme involves the purchase of short-term government bonds from eurozone member countries. No limit has been set on the level of spending the plan may involve.

The ECB said on Thursday that it is to continue holding interest rates at 0.75%.

As of 15:50 GMT, the Dow Jones Euro Stoxx Chemicals index was up by 2.89%, with every company in the index marking increases in their stock price.

The FTSE 100 in the UK was also up 1.68%, while the CAC 40 in France rose by 2.76% and Germany’s DAX index increased by 2.66%. On the other side of the Atlantic, the Dow Jones Industrial Average was up 1.71% in early trading.

Known as Outright Monetary Transactions (OMTs), the ECB bond purchases are to be made on the secondary market, and assistance is conditional on governments complying with their economic reform obligations.

It is hoped that the measures will bring down the borrowing costs for countries like Italy and Spain, with a view to avoiding potential sovereign bail-outs for those and other embattled eurozone countries in the future.

The spending is to be “sterilised” by the ECB removing as much money as it spends on the programme through other parts of the eurozone economic system.

Chemical major BASF’s shares were trading up 3.45%, while pharmaceutical company Bayer AG was the Euro Stoxx Chemical index’s biggest winner, with a 4.1% uplift in share price on Thursday afternoon.

Shares in Dutch paints and performance coatings firm Akzo Nobel were up 2.59%, while shares in German industrial gases giant Linde rallied by 3.08%.

Since his proclamation on 26 July that the bank would do “whatever it takes” to save the euro, ECB president Mario Draghi has spoken openly about his belief that the ECB has the justification to go beyond standard monetary policy to fulfil its mandate of preserving the stability of the eurozone.

Writing in German national newspaper De Zeit on 29 August, Draghi said: “When markets are fragmented or influenced by irrational fears, our monetary policy signals do not reach citizens evenly across the euro area.

“We have to fix such blockages to ensure a single monetary policy and therefore price stability for all euro area citizens. This may at times require exceptional measures,” he added.